Dow Loses 79 in Late Sell-Off; Smaller Issues Push Nasdaq Up
Some investors locked in profits Tuesday on November’s stunning blue-chip rally, handing the Dow Jones industrial average a 79.01-point loss--its worst point drop since the summer market plunge.
The Dow’s 1.2% decline, to 6,442.69, occurred largely in the final hour of trading, and was exacerbated by computerized sell programs.
But many analysts said the Dow’s pullback was overdue in any case, after the buying frenzy that had carried the well-known index up about 530 points, or 9%, just since early-November.
“We finally have a little spontaneous weakness,” said Richard McCabe, analyst at Merrill Lynch & Co. in New York.
The decline shaved General Electric shares by 4, to 99 1/4, and Procter & Gamble 3 7/8 to 104 3/4. But it was concentrated in the Dow, didn’t move the broad market much. Rising stocks still edged losers on the New York Stock Exchange, and winners had a solid 22-to-18 margin over losers on the Nasdaq market of mostly smaller issues.
Most smaller-stock indexes rose for the day, with the Russell 2,000 index adding 2.49 points, or 0.7%, to 357.83. The Nasdaq composite index edged up 0.55 point to a new record of 1,300.37, closing above 1,300 for the first time.
Even so, some analysts warned that the broad market is vulnerable to a fresh slide if the Dow stocks continue to be hammered, given their high profile.
Others said some additional profit-taking in blue chips would be healthy for the bull market overall. “This is the type of blow-off the market needs to take a little wind out of the sails,” said analyst Douglas Myers of brokerage Interstate Johnson/Lane. “Give it a chance to rebalance, reallocate and wax philosophic.”
There was no particular catalyst for Tuesday’s sell-off. Stocks had opened the day higher as bond yields fell amid new signs of economic weakness.
The bellwether 30-year Treasury bond yield fell as low as 6.31%, a new nine-month low, before edging higher in the afternoon to finish at 6.36%, unchanged from Monday.
Some traders said a turnaround in the dollar, which has been surging in recent days, may have weakened demand for U.S. stocks and bonds among foreign investors.
The dollar fell to 113.29 Japanese yen in New York from 114.55 Monday, though it was little changed against the German mark, closing at 1.554 marks.
There was speculation that the Japanese government doesn’t want the dollar to strengthen much more. “I’m hearing that the Bank of Japan and Ministry of Finance hold the view that 115 yen is too high” for the dollar, said Kosuke Hanao, head of currency trading at Industrial Bank of Japan.
Meanwhile, some analysts noted that the rush of corporations to issue long-term, fixed-rate bonds in recent weeks suggests that they sense U.S. yields could be bottoming. On Tuesday IBM issued $850 million of 100-year bonds, the largest sale of such super-long-term bonds ever. The bonds’ annualized yield is 7.22%.
For the stock market, the next few days are likely to reveal whether many investors are nervous enough to want to lock in more of their 1996 profits, or are sanguine enough about the 1997 economic outlook to sit tight.
Also, analysts are anxious to see whether investors taking profits in big-name stocks recycle those dollars into smaller stocks, which have perked up lately.
Among Tuesday’s highlights:
* Blue-chip shares falling sharply included AlliedSignal, down 2 3/8 to 69 1/4; Disney, down 2 to 71 7/8; and United Technologies, off 3 1/2 to 136 1/2.
* Bank stocks tumbled. NationsBank lost 2 3/4 to 100, Wells Fargo slid 4 1/2 to 279 1/4 and BankAmerica dropped 3 to 98 3/4. Big-bank issues have been among the market’s strongest stocks lately.
* Tech shares were mixed. Intel lost 1 1/4 to 125 7/8, IBM eased 3/8 to 162 5/8, Microsoft lost 3 1/16 to 154 11/16 and U.S. Robotics slumped 7 1/8 to 73 3/4. But Dell Computer gained 3 13/16 to 108 11/16, Compaq rose 7/8 to 81 3/8 and Read-Rite jumped 2 1/2 to 25 5/8.
* Biotech shares led smaller stocks higher, after brokerage Morgan Stanley issued a bullish outlook for Centocor, which shot up 5 3/8 to 34 3/8. Other winners included Regeneron, up 1 5/8 to 19 5/8; CellPro, up 1 5/8 to 14 3/8; Biogen, up 1 1/4 to 39 1/2; and Cephalon, up 1 3/8 to 19 3/4.
In foreign trading, European markets were sharply higher, and the Mexican market shot up, with the Bolsa index gaining 2.6%.
In commodities trading, gold prices fell to a fresh three-year low on renewed concerns about gold sales by European central banks. December gold futures ended down 40 cents at $368.50 an ounce on the Comex, after trading as low as $366 an ounce.
Market Roundup, D7
* MARKET BEAT: Small-stock funds are finally showing signs of life. D6
